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  1. UNIT – IV SUSTAINING EMPLOYEE INTEREST I. Arul Edison Anthony Raj, MBA, M.Phil, PGDIB, ADHRM (UK). Assistant Professor, EGS Pillay Engineering College, Nagapattinam.


  3. COMPENSATION: AN OVERVIEW • Compensation administration is one of management’s most difficult and challenging human resource areas because it contains many elements and has a far – reaching impact on an organization’s strategic goals.

  4. Cont., • Compensation is the total of all rewards provided to employees in return for their services. • The overall purposes of providing compensation are to attract, retain and motivate employees.

  5. Components of a Total Compensation Program EXTERNAL ENVIRONMENT INTERNAL ENVIRONMENT Compensation Financial Non – Financial DirectIndirect (Benefits)The JobJob Environment Wages Legally required benefits Skill Variety Sound Policies Salaries Social Security Task identity Competent employees Commissions Unemployment compensation Task significance Congenial Co-workers Bonus Workers Compensation Autonomy Appropriate status symbols Family & Medical Leave Feedback Working Conditions VOLUNTARY BENEFITS WORKPLACE FLEXIBILITY Payment for Time Not Worked Flextime Health Care Compressed Workweek Life Insurance Job Sharing Retirement Plans Flexible Compensation Employee Stock Option Plans Telecommunicating Supplemental Unemployment Benefits Part – Time Work Employee Services Modified Retirement Premium Pay Unique Benefits

  6. Definitions and Concepts • WAGE • According to Indian Labour Organization (ILO) defined the term wage as “the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees.” It also means that remuneration paid to production and maintenance or blue collar employees.

  7. Cont., • Salary • The term salary is defined as the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis.

  8. Components of Salary • Earnings: Earnings are the total amount of remuneration received by an employee during a given period. These include • Salary (Pay), • Dearness Allowance (DA), • House Rent Allowance (HRA), • City Compensatory Allowance (CA), • Other Allowance, • Overtime Payments, etc.

  9. Cont., • Nominal Wage: It is the wage paid or received in monetary terms. It is also known as money wage. • Real Wage: Real wage is the amount of wage arrived after discounting nominal wage by the living cost. It represents the purchasing power of money wage. • Take Home Salary: It is the amount of salary left to the employee after making authorized deductions like contribution to the provident fund, life insurance premium, income tax and other charges.

  10. Objective of Wage & Salary Administration • To acquire qualified competent personnel; • To retain the present employees; • To secure internal & external equality; • To ensure desired behaviour; • To keep labour and administrative costs; • To protect in public as progressive employers; • To pay according to the content and difficulty; • To facilitate pay roll; • To simplify collective bargaining; • To promote organization.

  11. Need for Sound Salary Administration • Most of the employees satisfaction and work performance are based on pay; • Internal inequalities in pay are more serious to certain employees; • Employees compare their pay with that of others; • Employees act only to gross external inequalities; • Employees compare the pay of different employees with their skill, knowledge, performance, etc.

  12. Equity in Financial Compensation • External Equity: • External equity exists when a firm’s employees receive pay comparable to workers who perform similar jobs in other firms. • Internal Equity: • Internal equity exists when employees receive pay according to the relative value of their jobs within the same organization.

  13. Cont., • Employee Equity: • A condition that exists when individuals performing similar jobs for the same firm are paid according to factors unique to the employee, such as performance level or seniority. • Team Equity: • Equity that is achieved when teams are rewarded based on their group’s productivity.

  14. Compensation Policies • A Compensation policy provides general guidelines for making compensation decisions. • Employees may perceive their firm’s compensation policies as being fair and unbiased and others may have different opinions.

  15. Pay Leaders • Pay leaders are organizations that pay higher wages and salary than competing firms. • Using this strategy, they feel that they will be able to attract high – quality, productive employees and thus achieve lower per – unit labour costs. • Higher – paying firms usually attract more highly qualified applicants than lower – paying companies in the same labour market.

  16. Wage Boards • This is one of the important institutions set up by the Government of India for fixation and revision of wages. • The wage boards fix and revise various components of wages like basic pay, dearness allowance, incentive earnings, overtime pay, house rent allowance and all other allowances

  17. Pay Commissions • This is another institution which fixes and revises the wages and allowances to the employees working in government and government department. • The First Pay Commission (1946) • The Second Pay Commission (1957) • The Third Pay Commission (1970 – 73) • The Fourth Pay Commission (1983) • The Fifth Pay Commission (1996) • The Sixth Pay Commission (2006)

  18. Wage Incentives • The term wage incentives has been used both in restricted sense of participation and in the widest sense of financial motivation. • According to the National Commission on Labour defined, “wage incentives are extra financial motivation. They are designed to stimulate human effort by rewarding the person over an above the time rated remuneration, for improvements in the present or targeted results.”

  19. Objectives of Wage Incentive Schemes • To improve the profit of a firm through a reduction in the unit costs of labour and material or both; • To avoid or minimize additional capital investment for the expansion of production capacity; • To increase a worker’s earnings without dragging the firm into a higher wage rate structure regardless of productivity and • To use wage incentives as a useful tool for securing a better utilization of manpower, better production scheduling and performance control, and a more effective personnel policy.

  20. Need for Wage Incentives in India • The efficiency of the Indian worker is very low, and needs to be raised. Wage incentives can play an important part improving his efficiency. • The average Indian worker is financially very poor. Financial incentives therefore are likely to tempt him to work better. • A proper application of wage incentive schemes can so affect the prices that the community would be benefited.

  21. Profit Sharing • A compensation plan that results in the distribution of a predetermined percentage of the firm’s profit to employees. • Many firms use this type of plan to integrate the employees interest with those of the company. • Profit – sharing plan can aid in recruiting, motivating, and retaining employees, which usually enhance productivity.

  22. Gain Sharing • Plans designed to bind employees to the firm’s productivity and provide an incentive payment based on improved company performance. • It is one of the most popular company – wide plans.

  23. Bonus • ‘Bonus’ is an extra payment to the workers beyond the normal wage. Payment of Bonus Act, 1965: • Employee drawing up to ` .1,600 are eligible for bonus. • Employees dismissed for fraud, theft etc., are disqualified for bonus. • Minimum bonus payable is 8.33% of the salary & max 20%. • The act was amended in the year 1985, according to this amendment, the employees whose salary is up to `. 2,500 are eligible for bonus. If the salary of an employee is beyond `.1,600, it will be taken as `.1,600 for the purpose of calculation bonus.

  24. Executive Compensation • Executive skill largely determines whether a firm will prosper, survive, or fail. • A company’s program for compensating executives is a critical factor in attracting and retaining the best available talent.

  25. Job Evaluation • Job evaluation deals with money and work. It determines he relative worth or money value of jobs. • The International Labour Organization defined job evaluation as“as attempt to determine and compare demands which the normal performance of a particular job makes on normal workers without taking into account the individual abilities or performance of the workers concerned”.

  26. Objectives of Job Evaluation • To compare the duties, responsibilities and demands of a job with that of other jobs. • To determine the hierarchy and place of various jobs in an organization. • To determine the ranks or grades of various jobs. • To minimize wage discrimination based on sex, age, caste, region, religion etc.

  27. Procedure of Job Evaluation • Analyze and Prepare Job Description: (Job evaluation is the outcome of job analysis) • Job analysis provides information necessary for appraising jobs like skills, knowledge, abilities, and aptitude. • Job description provides the information relating to duties and responsibilities. • Job specification provides information relating to employees minimum acceptable qualities.

  28. Procedure of Job Evaluation • Select and Prepare a Job Evaluation Plan: (Job should be divided into detailed tasks and positions) • It also includes selection of factors, elements needed for the performance of the jobs, determining the money value of each factors and element and writing instructions for evaluations.

  29. Procedure of Job Evaluation • Classify Jobs: • Classify the jobs in a sequential order based on their significance and contribution to the organization. This includes assigning money values to each class. • Install the Programme: • Educate the employees, win their confidence and then put the programme into operation.

  30. Procedure of Job Evaluation • Maintain the Programme: • This step involves updating the job evaluation programme, bring modification based on the changes in the conditions and situations. Make sure from time to time that the programme runs smoothly and perfectly.

  31. Job Evaluation Methods/Techniques • These techniques are grouped into two classes viz., quantitative and non-quantitative. Types of Job Evaluation Methods Quantitative Non-Quantitative Point Rating Factors Ranking Job Classification Method Comparison Method and Method Grading Method

  32. Social Security & Welfare (Employee Benefits) • According to Lord Beveridge define social security, “is an attack on give giants viz., want, disease, ignorance, squalor and idleness.” • Social Security Legislations in India: • Workmen’s Compensation Act, 1923 • The Employees’ State Insurance Act, 1948 • The Employees’ Provident Fund and Miscellaneous Provision Act, 1952 • The Maternity Benefit Act, 1961 • The Payment of Gratuity Act, 1952

  33. Fringe Benefits Type of Fringe Benefits Payment for Time Employee Safety and Welfare Recreational Old Age and Not worked Security Health Facilities Retirement Benefits Hours of Paid Shift Holiday Paid Work Holiday Premium Pay Vacation Retrenchment Lay-off Compensation Compensation Safety Workmen’s Health Measures Compensation Benefits Canteens Credit Housing Educational Transportation Parties and Societies Picnic Provident Deposit Gratuity Medical Benefit Pension Fund Linked Insurance

  34. Motivation Performance = f(ability X motivation)

  35. Concept & Definitions • Motivation is derived from the word ‘Motive’. • “A motive is an inner state that energizes, activates or moves and directs or channels behaviour towards goals.” • According to the Encyclopedia of Management, “motivation refers to the degree of readiness of an organization to pursue some designated goal and implies the determination of the nature and locus of the forces, including the degree of readiness”.

  36. Objective of Motivation • To exploit the unused potential in people, they are to be motivated. • Needless to say that such exploitation results in greater efficiency, higher production and better standard of living of the people.

  37. Types of Motivation • Positive approach or pull-mechanism or carat • Negative approach or push-mechanism or stick

  38. Positive Approach • People are said to be motivated positively when they are shown a reward and the way to achieve it. Such a reward may be financial or non-financial. • Monetary motivation may include different incentives, wage plans, productive bonus schemes etc. • Non-monetary motivation may include praise for the work, participation in management, social recognition etc.

  39. Negative Approach • By installing fear in the minds of people, one can get the desired work done. • In this method of motivation, fear of consequences of doing something or not doing something keeps the worker in the desired direction.

  40. Theories of Motivation How to Motivate the Employees? What are the ways to Motivate them?

  41. Theories of Motivation • Maslow’s Hierarchy of Needs. • Herzberg’s Two – factor Theory. • Vroom’s Expectancy Theory. • Alderfer’s ERG Theory. • Porter and Lawler’s Expectancy Theory. • Equity Theory of Work Motivation.

  42. Maslow’s Theory of Hierarchy of Needs Social / Acceptance

  43. Herzberg’s Two – Factor Theory • Maslow’s theory has been modified by Herzberg and he called it two – factor theory of motivation. • According to Herzberg’s, • Dissatisfiers or Maintenance Factors • Satisfiers or Motivational Factors

  44. Herzberg’s Classification of Maintenance & Motivational Factors

  45. Vroom’s Expectancy Theory of Motivation • Victor Vroom felt that content models were inadequate explanations of the complex process of work motivation and he developed the relatively new theory of motivation. • According to this theory, motivation of any individual depends on the desired goal and the strength of his expectation of achieving the goal.

  46. Vroom’s Expectancy Theory of Motivation • Vroom’s model is built mainly on three concepts – • Valance(The Strength of an Individual’s preference for a particular outcome) • Instrumentality(First level outcome in obtaining the desired second level outcome) • Expectancy(It is a probability or strength of a belief that a particular action or effort will leave to a particular first level outcome) • Motivation =Valance + Instrumentality + Expectancy

  47. Alderfer’s ERG Theory • Alderfer also feels that needs should be categorized and that there is basic distinction between lower order needs and higher order needs. • Alderfer identifies three groups of needs, viz., • Existence (Survival or Physiological well-being) • Relatedness (importance of interpersonal & social relationships) • Growth (Individual’s intrinsic desire for personal development) • That is why this theory is called ERG Theory.

  48. The Porter and Lawler Model Expectancy Theory • All the content theories assume that satisfaction leads to improved performance. • However, it was later found that there is a very low positive relationship between satisfaction and performance. • Lyman W. Porter and Edward E. Lawler exploded the complex relationship between motivation, satisfaction and performance.

  49. The Porter and Lawler Model Expectancy Theory • According to them, performance is a function of three important factors, viz: • If an employee want to perform, he must be motivated. • Motivation alone does not ensure performance and hence a person must have the necessary abilities and skills as well. • An employee must have an accurate knowledge of the requirements of the job.

  50. Equity Theory of Work Motivation